Venture Capital Funds

Definition

Venture capital is a type of private equity, a form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth. Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake, in the companies they invest in. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful. The start-ups are usually based on an innovative technology or business model and they are usually from the high technology industries, such as information technology, clean technology or biotechnology.


Venture Capital Funds

What are ‘Venture Capital Funds’

Venture capital funds are investment funds that manage the money of investors who seek private equity stakes in startup and small- to medium-sized enterprises with strong growth potential. These investments are generally characterized as high-risk/high-return opportunities. In the past, venture capital investments were only accessible to professional venture capitalists, although now accredited investors have a greater ability to take part in venture capital investments.

Explaining ‘Venture Capital Funds’

Venture capital is a type of equity financing that gives entrepreneurial or other small companies the ability to raise funding. Venture capital funds are private equity investment vehicles that seek to invest in firms that have high-risk/high-return profiles, based on a company’s size, assets and stage of product development.

The Operation of a Venture Capital Fund

Venture capital investments are considered either seed capital, early-stage capital or expansion-stage financing depending on the maturity of the business at the time of the investment. However, regardless of the investment stage, all venture capital funds operate in much the same way.

Further Reading

  • Venture capital's role in financing innovation for economic growth – www.sciencedirect.com [PDF]
  • The structure and governance of venture-capital organizations – www.sciencedirect.com [PDF]
  • Sources of funds and investment activities of venture capital funds: evidence from Germany, Israel, Japan and the United Kingdom – www.sciencedirect.com [PDF]
  • Convertible securities and optimal exit decisions in venture capital finance – www.sciencedirect.com [PDF]
  • Financial contract design in the world of venture capital – www.jstor.org [PDF]
  • What is the effect of the financial crisis on venture capital financing? Empirical evidence from US Internet start-ups – www.tandfonline.com [PDF]
  • Venture capital and the finance of innovation – papers.ssrn.com [PDF]
  • The role of venture capital in the creation of public companies: Evidence from the going-public process – www.sciencedirect.com [PDF]
  • The syndication of venture capital investments – www.jstor.org [PDF]